1.

cash flow statement

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cash-flow-statement.html
Meaning -A cash flow statement is an important tool
used to manage finances by tracking the cash flow for
an organization. This statement is one of the three key
reports (with the income statement and the balance
sheet) that help in determining a company’s
performance. It is usually helpful for making cash
forecast to enable short term planning.
Importance – For a business to be successful, it should
always have sufficient cash. This enables it to pay back
bank loans, buy commodities, or invest to get profitable
returns. A business is declared bankrupt if it doesn’t
have enough cash to pay its debts. Here are some of the
benefits of a cash flow statement:
●Gives details about spending
●Helps maintain optimum cash balance
●Helps you focus on generating cash
●Useful for short-term planning
Format of a cash flow statement -There are three
sections in a cash flow statement: operating activities,
investments, and financial activities.
Operating activities -Operating activities are those
cash flow activities that either generate revenue or
record the money spent on producing a product or
service. Operational business activities include
inventory transactions, interest payments, tax payments,
wages to employees, and payments for rent. Any other
form of cash flow, such as investments, debts, and
dividends are not included in this section.
Investment activities-The second section on the cash
flow statement records the gains and losses caused due
to investment in assets like property, plant, or
equipment (PPE) thus reflecting overall change in the
cash position for a company. When analysts want to
know the company’s investment on PPE, they check for
changes on a cash flow statement.
Financial activities-The third section on the cash flow
statement records the cash flow between the company
and its owners and creditors. Financial activities include
transactions involving debt, equity, and dividends. In
these transactions, incoming cash is recorded when
capital is raised (such as from investors or banks), and
outgoing cash is recorded when dividends are paid.

Cash flow statement example-Following is an

example of what a cash flow statement looks like. This
is the cash flow statement for XYZ company at the end

of Financial Year (FY)

What is negative cash flow?
Negative cash flow is a situation where a company has
more outgoing cash than incoming cash. The money
that the company is earning from sales may not be
enough to cover its expenses, and it may have to borrow
from external sources to cover the differences.
Following is a small example showing negative cash
flow. Here you can see that the business paid more in
expenses than the amount of income it brought in.
A negative cash flow doesn’t always imply that the
company’s financial performance was bad. Sometimes
the company’s incoming profit might be good, yet there
is little money the bank to pay off debts. Negative cash
flow is common for small businesses, but it is unhealthy
if it goes on for a long period.
Conclusion
A cash flow statement is a valuable document for a
company, as it shows whether the business has enough
liquid cash to pay its dues and invest in assets. You
cannot interpret a company’s performance just by
looking at the cash flow statement. You may need to
analyse long term trends after referring to balance sheet
and income statement in order to get a somewhat clear
picture of how the company is faring.

2.Balance sheet
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sheet.html
Meaning -A balance sheet is a financial statement that
contains details of a company’s assets or liabilities at a
specific point in time. It is one of the three core
financial statements (income statement and cash flow
statement being the other two) used for evaluating the
performance of a business.
A balance sheet serves as reference documents for
investors and other stakeholders to get an idea of the
financial health of an organization. It enables them to
compare current assets and liabilities to determine the
business’s liquidity, or calculate the rate at which the
company generates returns. Comparing two or more
balance sheets from different points in time can also
show how a business has grown.
Balance sheet example with sample format-A balance
sheet depicts many accounts, categorized under assets
and liabilities. Like any other financial statement, a
balance sheet will have minor variations in structure
depending on the organization. Following is a sample
balance sheet, which shows all the basic accounts
classified under assets and liabilities so that both sides
of the sheet are equal.
Components of balance sheet
ASSETS
a)Convertible -1) current assets 2) Fixed assets
b)Physical existense 1) Tangible 2) Intangible
c) Usage-1) Operating 2) Non operating
Liabilities
1)Current liabilities
2)Non current liabilities

Owner’s Equity/ Earnings

Owner’s equity is equal to total assets minus total
liabilities. In other words, it is the amount that can be
handed over to shareholders after the debts have been
paid and the assets have been liquidated. Equity is one
of the most common ways to represent the net value of
the company. Part of shareholder’s equity is retained
earnings, which is a fixed percentage of the
shareholder’s equity that has to be paid as dividends.
General sequence of accounts in a balance sheet
According to Generally Accepted Accounting
Principles (GAAP), current assets must be listed
separately from liabilities. Likewise, current liabilities
must be represented separately from long-term
liabilities. Current asset accounts include cash, accounts
receivable, inventory, and prepaid expenses, while
long-term asset accounts include long-term investments,
fixed assets, and intangible assets.
Under your current liability accounts, you can have
long-term debt, interest payable, salaries, and customer
payments, while long-term liabilities include long-term
debts, pension fund liability, and bonds payable.
Asset accounts will be noted in descending order of
maturity, while liabilities will be arranged in ascending
order. Under shareholder’s equity, accounts are
arranged in decreasing order of priority.
Balance sheet formula & equation
The balance sheet equation follows the accounting
equation, where assets are on one side, liabilities and
shareholder’s equity are on the other side, and both
sides balance out.
Assets = Liabilities + Shareholder’s Equity

Conclusion
A balance sheet is an important reference document for
investors and stakeholders for assessing a company’s
financial status. This document gives detailed
information about the assets and liabilities for a given
time. Using these details one can understand about
company’s performance. By analysing balance sheet,
company owners can keep their business on a good
financial footing.
3.Income
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income.asp
Meaning -Income is the money you receive in
exchange for your labor or products. Income may have
different definitions depending on the context—for
example, taxation, financial accounting, or economic
analysis.
For most people, income is their total earnings in the
form of wages and salaries, the return on their
investments, pension distributions, and other receipts.
For businesses, income is the revenue from selling
services, products, and any interest and dividends
received with respect to their cash accounts and
reserves related to the business.
What Is Income?
There are different terms for income, depending on the
quantity being measured. Gross income is the total
value of your salary or payments, without accounting
for any cash outflows. Net income refers to the income
left over after subtracting taxes or fees.
Taxable Income
For income tax purposes, the tax code attempts to
define income to reflect taxpayers’ actual economic
position. The general tax framework applies to
taxpayers’ personal revenue (other than tax-exempt
income) from all sources and offsets such revenue with
deductions for expenses and losses to determine taxable
income.
Types of Income
Three main categories of income that are part of
taxation are: ordinary income, capital gain, and tax-
exempt income.
Ordinary Income
In the United States, the tax law distinguishes ordinary
income from capital investments. Ordinary income
encompasses earnings, interest, regular dividends, rental
income, distributions from pensions or retirement
accounts, and Social Security benefits. Ordinary income
is taxed at rates ranging from 10% to 37% in 2023.
Capital Gains
Capital gains are the gains from selling assets that have
appreciated in value. In the United States, the capital
gains tax rates on assets held for more than one year are
0%, 15%, and 20%. Capital assets include personal
residences and investments such as real estate, stock,
bonds, and other financial instruments.
Tax-Exempt Income
Interest paid on certain bonds issued by governmental
entities is treated as tax-exempt income. Interest paid on
federal bonds and Treasury securities is exempt from
state and local taxation
How Is Earned Income Taxed?
Earned income is the money a person receives due to
working or business activities, such as earning a salary,
self-employment income, or certain government
benefits. This is distinct from unearned income, such as
receiving an inheritance, capital gains, or qualified
dividends.
Business Income: GAAP Income
Most businesses, including all public companies,
employ standard financial accounting methods and
practices—i.e., generally accepted accounting
principles (GAAP)—to determine their income and
value. Audited financial statements prepared in
accordance with these rules are required for public
companies. Investors assess businesses’ financial
statements and use them to compare the performance of
companies in the same or different industries.
What Is Taxable Income?
Taxable income is the total of all income from all
sources and in any form, minus any tax-exempt
amounts or allowable deductions. This is the amount
that is subject to income taxation.
Which Categories of Income Are Tax-Exempt?
Federal, state, and local tax laws specify certain
categories of income that are not subject to income
taxation. Generally, interest paid on state and local
government bonds is exempt from federal income tax.
Federal law also exempts interest paid on some special
narrow categories of federal agency debt. State tax laws
exempt interest on U.S. Treasury bonds, and some
states also exempt interest on state and local bonds. In
addition, distributions from Roth 401(k) plans and Roth
individual retirement accounts (IRAs) are tax-free.
Charities and other tax-exempt organizations do not pay
tax on their income, except for income from unrelated
trades or businesses.
What Is Not Considered Income?
Certain types of payments are not included in your
taxable income by the IRS. They include inheritances
and gifts, alimony payments, cash rebates, child
support, most healthcare benefits, qualifying adoption
reimbursements, and welfare payments. Scholarship
payments and life insurance benefits may be taxable, in
certain situations.
Is Net Income the Same As Profit?
Net income and profit are both business terms that refer
to the excess of income over expenses. However, there
is a difference: Net income is the difference between a
company’s total revenues and all expenses, including
overhead and operational costs, taxes, depreciation and
amortization of assets, and any other expenses. Profit
refers to the revenue that remains after some expenses.
There are several different calculations for profitability,
such as gross profit and operational profit, each of
which has a separate importance to analysts
KEY TAKEAWAYS
Income generally refers to the amount of money,
property, and other transfers of value received over a set
period of time in exchange for services or products.
Taxable income is gross income minus exclusions,
exemptions, and deductions allowed under the tax law.
Financial regulators, businesses, and investors focus on
businesses’ annual financial statements, which are
prepared in accordance with generally accepted
accounting principles (GAAP).
4.Profitability Ratio:-
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s.asp
● Profit Margin: This ratio measures how much profit
a company makes on each dollar of sales. It is
calculated by dividing net income by net sales.
● Gross Profit Margin: This ratio shows the
percentage of revenue that exceeds the cost of
goods sold. It is calculated by dividing gross profit
by net sales.
● Operating Profit Margin: This ratio indicates how
much profit a company makes from its core
business operations, excluding taxes and interest
expenses. It is calculated by dividing operating
income by net sales.
● Return on Assets (ROA): ROA measures how
efficiently a company is using its assets to generate
profit. It is calculated by dividing net income by
average total assets.
● Return on Equity (ROE): ROE measures a
company's profitability by revealing how much
profit it generates with the money shareholders
 have invested. It is calculated by dividing net
income by average shareholders' equity.
● Return on Capital Employed (ROCE): ROCE
measures a company's profitability and the
efficiency with which its capital is employed. It is
calculated by dividing earnings before interest and
taxes (EBIT) by total capital employed.
● Net Profit Margin: This ratio shows the percentage
of revenue that remains as profit after all expenses
are deducted. It is calculated by dividing net
income by net sales.
● Operating Income Margin: This ratio indicates the
percentage of revenue that remains after deducting
operating expenses. It is calculated by dividing
operating income by net sales.
● EBITDA Margin: EBITDA margin measures a
company's profitability by showing how much of
its revenue is left over after accounting for direct
expenses, excluding taxes and interest. It is
calculated by dividing EBITDA by net sales.
These ratios help investors and analysts assess a
company's financial health and performance, indicating
its ability to generate profit from its operations.

5. Profit and loss account

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plstatement.asp
What Is a Profit and Loss (P&L) Statement?
A profit and loss (P&L) statement, also known as an
income statement, is a financial statement that
summarizes the revenues, costs, expenses, and
profits/losses of a company during a specified period.
These records provide information about a company’s
ability to generate revenues, manage costs, and make
profits.
KEY TAKEAWAYS
The profit and loss (P&L) statement is a financial
statement that summarizes the revenues, costs, and
expenses incurred during a specified period.
The P&L statement is one of three financial statements
that every public company issues quarterly and
annually, along with the balance sheet and the cash flow
statement.
When used together, the P&L statement, balance sheet,
and cash flow statement provide an in-depth look at a
company’s overall financial performance.
Statements are prepared using the cash method or
accrual method of accounting.
It is important to compare P&L statements from
different accounting periods, as any changes over time
become more meaningful than the numbers themselves.
How Profit and Loss (P&L) Statements Work
The P&L statement is one of three financial statements
that every public company issues on a quarterly and
annual basis, along with the balance sheet and the cash
flow statement. It is often the most popular and
common financial statement in a business plan, as it
shows how much profit or loss was generated by a
business.
P&L statements are also referred to as a
Statement of profit and loss
Statement of operations
Statement of financial results or income
Earnings statement
Expense statement
Income statement
Comparing P&L Statements
It is important to compare income statements from
different accounting periods. The reason behind this is
that any changes in revenues, operating costs, research
and development (R&D) spending, and net earnings
over time are more meaningful than the numbers
themselves. For example, a company’s revenues may
grow on a steady basis, but its expenses might grow at a
much faster rate.
Comparing one company’s P&L statement with another
in the same industry that is similar in size can further
help investors evaluate the financial well-being of a
company. For example, doing so might reveal that one
company is more efficient at managing expenses and
has better growth potential than the other.
Types of P&L Statements
As noted above, a P&L statement may be prepared in
one of two ways. These are the cash method and the
accrual method.
Cash Method
The cash method, which is also called the cash
accounting method, is only used when cash goes in and
out of the business. This is a very simple method that
only accounts for cash received or paid. A business
records transactions as revenue whenever cash is
received and as liabilities whenever cash is used to pay
any bills or liabilities. This method is commonly used
by smaller companies as well as people who want to
manage their personal finances.
Accrual Method
The accrual accounting method records revenue as it is
earned. This means that a company using the accrual
method accounts for money that it expects to receive in
the future. For instance, a company that delivers a
product or service to its customer records the revenue
on its P&L statement, even though it hasn’t yet received
payment. Similarly, liabilities are accounted for even
when the company hasn’t yet paid for any expenses.
Example of a P&L Statement
Below is the income or P&L statement for 2023 and
2022 for the hypothetical company Butterfly Industries.
All of the figures are in U.S. dollar (USD) millions
except per-share data
Why Are Profit and Loss (P&L) Statements
Important?
A profit and loss (P&L) statement is one of the three
types of financial statements prepared by companies.
The other two are the balance sheet and the cash flow
statement. The purpose of the P&L statement is to show
a company’s revenues and expenditures over a specified
period of time, usually over one fiscal year.

What Is the Difference Between a P&L Statement

and a Balance Sheet?
A company’s P&L statement shows its income,
expenditures, and profitability over a period of time.
The balance sheet, on the other hand, provides a
snapshot of its assets and liabilities on a certain date.
The balance sheet is typically presented as of the last
day of the company’s fiscal year. Investors use the
balance sheet to understand the financial strength of the
company, comparing the amount and quality of its
assets against its liabilities.
Are All Companies Required to Prepare P&L
Statements?
Publicly traded companies are required to prepare P&L
statements and must file their financial statements with
the U.S. Securities and Exchange Commission (SEC) so
that they can be scrutinized by investors, analysts, and
regulators. Companies must comply with a set of rules
and guidelines known as generally accepted accounting
principles (GAAP) when they prepare these statements.
Private companies, on the other hand, are not
necessarily required to comply with GAAP. Some
smaller companies, though, may not even prepare
formal financial statements at all.
The Bottom Line
A P&L statement summarizes the revenues, costs, and
expenses of a company during a specific period. It is
one of three financial statements that public companies
issue quarterly and annually—the other two are a
balance sheet and a cash flow statement. Investors and
analysts use financial statements to assess the financial
health of a company and its growth potential.

6.Top-Down Analysis
An analysis strategy that first focuses on macro
indicators, and trickles down from there
What is Top-Down Analysis?
Top-down analysis starts by analyzing macroeconomic
indicators, then performing a more specific sector
analysis. Only after that does it dive into the
fundamental analysis of a specific firm. It is the
opposite of bottom-up analysis, which focuses on
looking at fundamentals or key performance indicators
before anything else.

Breaking Down Top-Down Analysis

Gross Domestic Product
A top-down approach will always start at the highest
level, that is, determining which country has the best
investment climate. At this level, a commonly used
indicator is gross domestic product or GDP. This
indicator is a good benchmark to compare various
countries. GDP is a comprehensive measure of
economic growth, which is why many investors use it.
While GDP is an important factor to consider, there are
also other considerations that an investor must analyze.

Geopolitical Risks
Global investors ought to assess the political climate of
a country before opting to invest in it. As an investor,
you should determine whether the country’s economy is
at risk. This could be due to its own political situation
or situations where neighboring countries could be
jeopardizing its economy. For instance, when the
Russian Federation annexed Crimea in 2014, the risk of
investing in Eastern Europe increased considerably.

Asset Condition Assessment

Another factor that you should keep in mind entails the
asset valuations with respect to the country’s economic
growth. Although a fast-developing economy can give
rise to fast-growing firms, the industry may be requiring
a lot for the securities. The Chinese property stocks are
a perfect case in point. They were overpriced in 2016,
following a rise in prices.

Local Currency Climate

Apart from these concerns, you also need to factor in
the effect that the nation’s currency will have on your
investment venture. It may seem like a foreign security
is doing well in its local currency, but once you start
assessing the depreciation in terms of the U.S. dollar,
you may realize that its growth rate is not as high as you
thought it would be.
Picking the Right Sector in a Top-down Analysis
Once you have the ideal place, the next step entails
comparing the performance of different industries
within that country. Almost always, you will find that
the greatest part of growth is taking place in certain
areas of the economy. Such areas experience rapid
changes within a single economic cycle, often because
of introducing certain technologies.

For instance, a particular nation may be heavily reliant

on one specific sector such as agriculture or energy. If
you diversify your investments across other sectors that
are not doing well, you won’t get the high returns that
you would have if you had targeted the flourishing
sector.

Another way to look at this is to focus on the groups

that are nurturing and fueling the economy’s growth.
For example, a thriving middle class in a developing
industry could be setting the pace for growth and
development in consumer discretionary equities.

It’s also imperative to assess whether the markets are

being affected by the federal government’s activities.
The reason for this is that some governments choose to
give subsidies to only a few select industries. And while
this may improve the companies’ profits in the short
term, this may not last for a very long time.
Assessing the Nitty-gritty of Top-Down Analysis
The last stage in the top-down analysis approach to
investment entails evaluating the details of individual
assets. More specifically, you should examine both the
fundamental and technical aspects of the asset.
Investors usually choose from a wide range of assets,
including foreign stocks, international ETFs, and
American Depository Receipts (ADRs).
With regard to the technical aspect, you should
specifically look for assets with an increasing trend in
pricing. As for the fundamental aspect, you’ll need to
find assets whose value tends to be underestimated.
These dynamics prevent you from overpaying for
certain assets.
Should You Consider Using Top-Down Analysis?
Employing top-down analysis calls for a great deal of
research. Not only do you have to compare the
economies of different countries but also different
sectors in the chosen state. This means that the
likelihood of choosing a company that’s on a downward
trend is low; hence, minimizing your risk of investment.

Another reason for using top-down analysis is that it

allows you to diversify your investments across
different sectors. You can even choose to diversify your
portfolio across global markets. If you come across an
international market that is performing well, you can
allocate part of your capital to it. Diversification helps
to lessen the blow in case the primary market you’ve
invested in undergoes a downturn.
Since every top-down analysis begins with a global
outlook of the economy, it’s highly unlikely for
investors to be caught off-guard by upheavals. Ideally,
this strategy requires that an investor keeps abreast of
geopolitical issues and whole economies. Given the vast
information such investors have regarding global events
and interlaced networks, it’s easy to predict trends in
different sectors.

All these advantages support the fact that top-down

analysis is worth considering. However, this is not to
say that you should do away with the bottom-up
strategy entirely. After all, you can use a combination
of both strategies. With the bottom-up technique, you’ll
have a clear picture of an individual firm before
deciding to invest in it. This approach enables you to
access the company’s financial reports to help you
determine whether it has a solid financial position.

At the same time, a top-down analysis gives you a

comprehensive picture of the global economy. Keeping
up-to-date with the performance of different economies
can help you predict the trend of the specific industry
you’ve invested in. It also gives you a chance to
diversify your portfolio by investing in different
markets.
The Bottom Line for Top-Down Analysis
In summary, a top-down analysis is when investors first
take a broad picture of the economies and sectors they
want to invest in. It means that they assess the
economic growth rates of different countries across the
globe. Once they have identified potential countries,
they choose specific sectors that seem to be flourishing
in that country. The last step is to pick firms thriving in
that particular industry, which they then invest in. It is a
funnel-approach to selecting investment opportunities,
as the top-down analysis name implies.
Wealth managers use the top-down approach for a
few key reasons:
Big picture first: It allows them to focus on the overall
economic climate and how it might impact different
asset classes [Investopedia, Top-Down Investing]. By
understanding the macro trends, they can make
informed decisions about how to allocate their client’s
wealth across stocks, bonds, real estate, and other
investments.
Efficiency: Analyzing the entire universe of individual
companies can be overwhelming. The top-down
approach helps them prioritize their research by starting
with the big economic factors and then narrowing down
to specific sectors and companies
[wealthmanagementcanada.com, Top-down and
Bottom-up Analysis].
Adaptability: The top-down approach allows for
flexibility in a changing market. By understanding the
economic outlook, wealth managers can adjust their
client’s asset allocation to take advantage of potential
opportunities or minimize risk [Fisher Investments, Top
Down Approach].
It's important to note that wealth managers often
combine the top-down approach with a bottom-up
approach, which focuses on the fundamentals of
individual companies. This combination helps them to
balance the big-picture trends with the potential of
specific investment opportunities.
Benefits beyond Efficiency:
Reduced Risk: By prioritizing economic factors, the
top-down approach can help wealth managers identify
potential risks early on. For instance, if a recession is
looming, they can reduce their client's exposure to
stocks and increase their holdings in safer assets like
bonds.
Disciplined Strategy: The top-down framework
encourages a systematic approach to portfolio
construction. This can be helpful for clients who may
be prone to emotional investing decisions based on
short-term market fluctuations.
Alignment with Client Goals: The top-down
approach allows wealth managers to tailor investment
strategies to a client’s specific goals and risk tolerance.
For example, a client nearing retirement may prioritize
capital preservation over high growth, leading the
manager to allocate more towards bonds in the top-
down analysis.
Limitations to Consider:
Macroeconomic Uncertainty: Predicting the future
state of the economy is inherently imprecise. A wealth
manager’s top-down analysis can be impacted by
unexpected events or changes in government policy.
Missing Hidden Gems: Focusing on broad sectors can
lead to overlooking strong individual companies with
the potential for significant growth. A purely top-down
approach might miss these opportunities.
Passive Management Style: The top-down approach
can lead to a more passive investment style, relying on
market trends rather than actively seeking out
undervalued companies. Some clients may prefer a
more active approach.
Overall, the top-down approach is a valuable tool for
wealth managers, but it’s important to understand its
strengths and weaknesses. Often, it’s used in
conjunction with the bottom-up approach for a more
holistic wealth management strategy.

Top-Down Investment Approach

Investors use a variety of approaches to construct and
manage portfolios. Two common approaches to
portfolio construction are top-down and bottom-up
investing. A top-down process generally places more
emphasis on macroeconomic forecasts than on
individual stock picking—which is the primary focus in
a bottom-up investing process. Fisher Investments
employs a largely top-down process that incorporates
broad economic factors into every step—from our
overall market forecast down to the individual securities
we select—helping to ensure strategic cohesion.
Why We Prefer a Top-Down Approach to Investing
Rather than looking for the needle in the haystack, we
believe it’s better to look for the haystack with the most
needles. A top-down approach utilizes broad economic
analysis where market forecasts drive tactical decisions.
This requires analyzing a wide variety of
macroeconomic factors before selecting securities. Our
economic forecast drives an asset allocation decision—
the portfolio’s mix of stocks, bonds, cash and other
securities. For example, a positive forecast may warrant
high exposure to equities whereas a negative forecast
may warrant higher exposure to cash. We then identify
areas of the market—countries, sectors and styles—we
expect to perform better or worse than other areas,
seeking to diversify the strategy appropriately. From
there, we can select the individual securities that align
with our high-level views.
Importantly, we believe this approach better focuses on
the primary driver of a portfolio’s returns over time—
asset allocation. Consider an extreme example—an all-
cash portfolio versus an all-stock portfolio. Over time,
there will be a big difference between how they
perform. The difference will be much bigger than that
of two all-stock portfolios, regardless of the stocks in
them. Therefore, we believe investors should spend
more time correctly identifying which asset allocation is
appropriate for the period ahead before attempting to
select individual stocks.
We also believe top-down investing gives us more
flexibility to make tactical decisions amid constantly
evolving market conditions. It allows us to adjust a
portfolio’s asset and sub-asset—the mix of countries,
sectors and styles— allocation depending on our
forecast.

We also leverage our global economic analysis across

countries, sectors and styles (size, growth vs. value,
etc.) to help determine where we are in a market cycle
and which areas of the market we want exposure to. For
example, large growth-oriented companies tend to
outperform in later stage market cycles. If this category
is doing particularly well, it may suggest the market
cycle is nearing its end.
Our Top-Down Approach to Investing: 70/20/10
We believe 70% of investment returns are attributable
to a portfolio’s asset allocation, 20% to sub-asset
allocation, and 10% to the selection of Individual
securities. Exhibit 1 shows the progression of our
70/20/10 model for reference:
Forward-looking return attribution is an approximation
intended for illustrative purposes and should not be
considered a forecast of future returns or return
attribution.

Here is a more detailed look at each step in the

process:
70%: Asset allocation: We determine a portfolio’s mix
of stocks, bonds, cash and other assets by first
understanding an investor’s financial goals and needs.
From there we apply macroeconomic analysis to
tactically adjust the asset allocation, if necessary, to
align with our market forecast. We study economic,
political and sentiment drivers to help make this
decision. Because asset allocation is a crucial factor
contributing to returns, we treat it as the highest-level
decision.
20%: Sub-asset allocation We narrow down a list of
possible assets based on characteristics, such as
country, sector and style. We combine historical
analysis with forward looking views to determine which
categories are likely to outperform. We also develop a
counter strategy—having some exposure to areas we
don’t expect to outperform—to ensure proper
diversification.
10%: Security selection: We conduct fundamental
analysis to select individual securities that fit our sub-
asset allocation decisions. The first two steps provide a
framework for which securities to consider.
Putting It Together: A Top-Down Approach on Two
Main Levels
Think Strategically: Select Assets to Match Your
Goals
If you are an individual investor, how do you apply a
top-down strategy? To start, your long-term goals
should help shape your investment plan. A well-
designed portfolio should be personalized to match your
individual financial situation. Since every investor is
different, there is no magic formula for the right mix of
assets. It depends on your unique set of financial goals,
needs and appetite for risk.
If you have significant growth needs, your portfolio
may want to have greater exposure to assets that have
historically provided higher returns with high short-
term volatility—like stocks. If you require less portfolio
growth and need more cash flow, your portfolio may
want more exposure to assets with historically lower
returns and lower short-term volatility—like bonds.
You should put a lot of thought into what mix of asset
classes will most likely get you to your goals. In most
cases, this strategic decision should only change when
your circumstances or needs materially change. In other
words, it should be independent of the current market
environment and based on your desired long-term
outcomes.
At Fisher Investments, we thoroughly review each
client’s financial situation and goals to recommend an
optimal asset allocation designed to achieve success.
Think Tactically: Use Market Forecasts to Adjust
Your Asset Selection
Once you have identified the right asset mix to match
your goals, you can then make decisions on a tactical
level to try to improve your portfolio’s performance
over time.
Your market forecasting will likely drive most of these
decisions. Here are a couple of examples:
Asset Allocation: If your research leads you to believe
a prolonged stock market downturn will likely occur in
the near term, you may consider decreasing your
exposure to equities. However, this can be dangerous if
done too frequently or at the wrong time. Having a third
party involved—like an adviser—is often helpful to
keep you on track to reach your goals.
Sub-Asset Allocation: Based on your views, you may
wish to hold fewer securities in areas you think might
underperform the overall market and hold more of what
you believe might outperform. For example, if you
anticipate Energy stocks will outperform, you might
choose to hold more Energy companies. However, you
may want to avoid holding too many assets in a given
sector or particular region of the world, as that can
magnify your risk.
Portfolio management is complex. Market conditions
are always changing and financial media often muddies
the picture. Having a trusted adviser—like Fisher
Investments—do the research and keep you focused on
your long-term financial goals can give you some peace
of mind and helpful counsel.

7.Bottom up approach
Bottom-up refers to an approach that starts with the
foundation or individual elements and builds towards a
more complex system or idea. It’s the opposite of top-
down, which starts with the big picture and works its
way down to the details.
Focuses on the Fundamentals: In investing, a bottom-
up investor analyzes individual companies, their
financials, future prospects, and competitive landscape.
They aim to identify undervalued gems with strong
potential.
Building Block Approach: Imagine constructing a
building. Bottom-up means laying the bricks one by
one, ensuring a solid foundation before adding further
stories.
Data-Driven Decisions: Bottom-up approaches rely
heavily on data and evidence from the ground level to
inform decisions.
Advantages of Bottom-Up:
Strong Foundation: It ensures a solid base for complex
systems, reducing the risk of overlooking crucial
details.
Empowers Individuals: Bottom-up approaches value
the contributions of individual elements, fostering a
sense of ownership and engagement.
Adaptability: By focusing on building blocks, the
system can be easily adjusted and improved as needed.
Disadvantages of Bottom-Up:
Time-Consuming: Building from scratch can be slower
than using a pre-defined framework.
Potential for Incompleteness: Without a clear overall
vision, the final outcome might lack cohesion or miss
the bigger picture.
In conclusion, bottom-up thinking is a valuable
approach for building complex systems, conducting
research, and fostering innovation. However, it’s
important to consider its limitations and ensure it aligns
with the overall goals.
Here are some examples of bottom-up in action:
Scientific Research: Many scientific discoveries start
with detailed observations and experiments, building
knowledge from the ground up.
Software Development: In agile software
development, features are built and tested
incrementally, ensuring a functional core before adding
complexity.
Business Management: A bottom-up company culture
empowers employees to contribute ideas and solutions,
fostering innovation.
Tacticaly asset allocation in bottoms up investing
Tactical asset allocation (TAA) and bottom-up
investing are two investment approaches that can be
complementary, but they focus on different aspects of
portfolio construction.
Bottom-up Investing:
Focuses on individual securities (stocks, bonds, etc.)
Involves in-depth analysis of a company’s fundamentals
(financial health, future prospects)
Decisions about buying or selling are based on whether
a security is undervalued or overvalued by the market
Tactical Asset Allocation (TAA):
Focuses on the overall asset mix of a portfolio (stocks,
bonds, cash, etc.)
Takes a more macro view, considering economic
conditions, market trends, and risk tolerance
Aims to adjust the asset mix to potentially outperform a
benchmark index or mitigate risk during market
downturns
How They Work Together in a Bottom-Up
Framework:
A bottom-up investor performing TAA would analyze
individual companies first.
Based on this analysis, they’d identify attractive
securities across different asset classes (stocks in a
growth sector, bonds for stability).
The overall asset allocation would emerge from the
collection of these individual security selections, but
with an awareness of the portfolio’s total risk profile
Here's a key point:
Pure bottom-up investing doesn’t inherently consider
the overall asset allocation. You might end up with a
portfolio heavily skewed towards stocks if all the
attractive companies you find happen to be in that
category.
Benefits of Combining Them:
Enhances diversification through a focus on both
individual security selection and overall asset mix.
Allows for portfolio adjustments based on market
conditions without sacrificing the focus on strong
companies.
Things to Consider:
TAA requires active management and close monitoring
of markets.
Implementing TAA effectively can be complex and
time-consuming.
There’s no guarantee that TAA will outperform a buy-
and-hold strategy.
Overall, combining TAA with a bottom-up approach
can be a powerful strategy for investors who want to
actively manage their portfolios and potentially enhance
returns. However, it's important to be aware of the
challenges involved.
Price-to-Earnings (P/E) Ratio:
Formula: Market Price per Share / Earnings per Share
(EPS)
Interpretation: P/E tells you how much the market is
willing to pay for each dollar of a company’s earnings.
A high P/E could indicate an overvalued stock or strong
future growth expectations. A low P/E could suggest an
undervalued stock or lower growth prospects. However,
it’s important to compare the P/E ratio to industry
averages and the company’s historical P/E.
Current Ratio:
Formula: Current Assets / Current Liabilities
Interpretation: The current ratio measures a company’s
short-term liquidity, its ability to pay off current
liabilities with current assets. A high current ratio
indicates strong liquidity, while a low ratio suggests
potential difficulty meeting short-term obligations.
Industry benchmarks can help determine an appropriate
current ratio for a specific company.
Return on Equity (ROE):
Formula: Net Profit / Shareholders’ Equity
Interpretation: ROE measures how effectively a
company is using its shareholders’ equity to generate
profits. A high ROE indicates efficient use of capital,
while a low ROE suggests the company might not be
generating enough profit on its shareholders’
investment. It’s helpful to compare ROE to industry
averages and the company’s historical ROE to
understand its performance.
Net Profit Margin:
Formula: Net Profit / Revenue
Interpretation: Net profit margin shows what percentage
of each revenue dollar a company keeps as profit after
all expenses. A high net profit margin indicates a
company is efficient at controlling costs and generating
profits from its sales. A low margin could suggest high
operating costs or pricing inefficiencies. Again,
comparing the margin to industry averages and the
company’s historical performance is essential.
Beyond these ratios, other financial metrics used in
bottom-up analysis include:
Revenue Growth: Consistent growth in revenue
indicates a company’s ability to expand its market share
and profitability.
Debt-to-Equity Ratio: This ratio measures a
company’s financial leverage, its reliance on debt
financing. A high ratio suggests higher risk, while a low
ratio indicates a more conservative financial structure.
Free Cash Flow: This metric shows the cash available
to a company after meeting its operating expenses and
capital expenditures. Positive free cash flow allows a
company to invest in growth, pay dividends, or reduce
debt
By analyzing these financial metrics, a bottom-up
investor can gain valuable insights into a company’s
financial health, profitability, and growth potential.
Remember, financial ratios should be used in
conjunction with other factors like the company’s
business model, competitive landscape, and future
prospects for a comprehensive investment decision.
Earnings Growth and Future Earnings
Expectations:
Earnings Growth: This refers to the historical increase
in a company’s earnings per share (EPS) over a specific
period. It’s a key indicator of a company’s profitability
and its ability to generate returns for shareholders.
Future Earnings Expectations: Analysts and investors
try to forecast a company’s future earnings based on
various factors like historical trends, industry outlook,
management’s guidance, new product launches, and
market conditions. Strong future earnings expectations
can lead to a higher stock price today.
Bottom-up analysis focuses on understanding the
drivers of both historical and future earnings growth:
Revenue and Sales Growth: This is the foundation for
earnings growth. Increasing revenue through higher
sales volume or selling products at a premium price
translates to more profit and potentially higher EPS.
Bottom-up analysis looks at factors influencing revenue
growth, such as:
Market size and growth potential: Is the company
operating in a growing market? Can it capture a larger
share of the market?
New product development: Does the company have a
pipeline of innovative products that can drive future
sales?
Pricing power: Can the company maintain or increase
its product prices?
Sales and marketing effectiveness: Is the company
efficient at reaching its target audience and converting
leads into sales?
By analyzing these factors, a bottom-up investor can
assess the sustainability of a company’s earnings
growth and the validity of future earnings expectations.
Here are some additional points to consider:
Profitability Margins: Look beyond revenue growth
and analyze metrics like gross margin and operating
margin to understand how efficiently the company
converts sales into profits. Expanding margins
alongside revenue growth is a strong indicator of
sustainable earnings growth.
Cost Management: A company’s ability to control
operating expenses like production costs, marketing
costs, and administrative costs is crucial for maintaining
margins and driving earnings growth.
Overall, a bottom-up analysis that incorporates earnings
growth, revenue and sales analysis, and profitability
assessments helps investors identify companies with the
potential for long-term value creation.
Balance Sheet:
Provides a snapshot of a company’s financial position at
a specific point in time.
Key elements for bottom-up analysis include:
Assets: Analyze the type and value of assets a company
owns (cash, inventory, property, equipment). This helps
assess their ability to generate future cash flow.
Liabilities: Understand the company’s debt obligations
(short-term and long-term) to gauge their financial risk.
Shareholders’ Equity: This represents the company’s
net worth, the difference between assets and liabilities.
A healthy equity level indicates a financial buffer.
Income Statement:
Shows the company’s financial performance over a
period (usually a quarter or a year).
Key elements for bottom-up analysis include:
Revenue: Analyze revenue trends and sources of
income. Consistent revenue growth is a positive sign.
Expenses: Understand the various costs the company
incurs (cost of goods sold, operating expenses, etc.).
Analyze cost management efficiency and how it
impacts profitability.
Net Income (Profit): This is the bottom line, showing
the company’s overall profitability after all expenses
are deducted from revenue.
Cash Flow Statement:
Shows the movement of cash through the company’s
operating, investing, and financing activities over a
period.
Key elements for bottom-up analysis include:
Operating Cash Flow: This shows how much cash the
company generates from its core business operations.
Positive operating cash flow is crucial for sustaining the
business.
Investing Cash Flow: Analyze the company’s
investments in assets like property, plant, and
equipment. Understand how these investments might
impact future cash flow generation.
Financing Cash Flow: This shows how the company
raises and uses cash through debt and equity financing.
A healthy balance between debt and equity financing is
desirable.
Here’s how bottom-up analysis uses these financial
statements:
Identify trends and ratios: Calculate financial ratios
like return on equity (ROE), current ratio, and debt-to-
equity ratio using data from these statements. These
ratios provide valuable insights into the company’s
efficiency, profitability, and risk profile.
Compare with industry benchmarks: Compare the
company’s financial performance metrics to industry
averages to understand how it stacks up against
competitors.
Assess future potential: Analyze the company’s
financial statements alongside its business model, future
plans, and industry outlook to project its future earnings
growth and cash flow generation potential.
Remember, financial statements are just one piece of
the puzzle. A thorough bottom-up analysis should also
consider qualitative factors like the company’s
management team, competitive landscape, and overall
market conditions.

What Is Bottom-Up Stock Analysis?

Bottom-up stock analysis is a strategy used in
investment analysis to evaluate individual companies
and stocks based on their fundamentals, including
financial statements, management, and industry
conditions.
Unlike the top-down approach that focuses on
macroeconomic factors such as interest rates, inflation,
and GDP growth, bottom-up analysis examines the
microeconomic factors that drive a company’s
performance.
The basic principle of bottom-up analysis is to find
quality companies with strong competitive advantages,
sustainable growth prospects, and reasonable
valuations.
By assessing a company’s financial metrics,
management quality, competitive positioning, and
industry dynamics, investors can determine whether a
stock is undervalued or overvalued relative to its peers
or the overall market.
The bottom-up investment strategy focuses on the
intrinsic value of individual companies rather than
external factors or market trends.

How Bottom-Up Stock Analysis Works

The process of bottom-up analysis involves several

steps that help investors identify undervalued

companies and make informed investment decisions.
Step 1: Identify Quality Companies
Quality companies typically have a sustainable
competitive advantage or moat, which is a unique
advantage that allows them to earn high profits and fend
off competition.
Moats can come from various sources, such as
economies of scale, brand recognition, patents, network
effects, or switching costs. By identifying companies
with moats, investors can select stocks with a higher
probability of long-term success.
Step 2: Analyze Financial Metrics
Key financial metrics include revenue growth, earnings
growth, profit margins, return on equity (ROE), return
on assets (ROA), debt levels, and free cash flow (FCF).
These metrics provide insight into a company’s
financial health, profitability, and growth potential.
Investors should look for companies with a track record
of consistent revenue and earnings growth, high profit
margins, low debt levels, and positive FCF.
Step 3: Evaluate Management Quality
A competent and experienced management team can
make a significant difference in a company’s
performance and success. Investors should assess the
management’s track record, leadership style, strategic
vision, and alignment with shareholders’ interests.
Companies with management teams that have a long-
term vision and a history of delivering on their promises
are more likely to create value for shareholders.
Step 4: Assess Competitive Positioning
A company’s competitive position can affect its ability
to generate profits and grow. Investors should evaluate
the company’s market share, customer base, pricing
power, product differentiation, and barriers to entry.
Companies with a dominant market position, loyal
customers, strong brand recognition, and high barriers
to entry are more likely to sustain their competitive
advantage and generate long-term value.
Step 5: Consider Valuation
Valuation refers to the price investors are willing to pay
for a stock relative to its intrinsic value.
Investors should compare the company’s valuation
metrics, such as price-to-earnings (P/E) ratio, price-to-
sales (P/S) ratio, price-to-book (P/B) ratio, and dividend
yield, to those of its peers and historical averages.
A company with a lower valuation than its peers or
historical averages may present a buying opportunity.
An overvalued company may pose a risk of a correction
or a decline and should be avoided.
Pros of Bottom-Up Stock Analysis
Bottom-up analysis has several advantages that make it
a useful strategy for stock picking and investment
decision-making.
Focuses on Fundamentals
Bottom-up analysis looks at an individual company’s
fundamentals rather than unpredictable and volatile
macroeconomic trends.
By focusing on company-specific factors such as moats,
financial metrics, management quality, and competitive
positioning, investors can identify undervalued stocks
with the potential for long-term growth and profits.
Avoids Herd Mentality
By conducting a thorough analysis of a company’s
microeconomic fundamentals, investors can make
informed decisions based on data and facts rather than
emotions and speculation.
The bottom-up approach can help investors abstain
from hype-driven investing that often leads to bubbles
and crashes.
Diversifies Investment Portfolio
It allows investors to build a portfolio of quality
companies that can weather different market conditions
and cycles.
By selecting companies from different industries and
sectors with unique competitive advantages and growth
prospects, investors can reduce the risk of concentrated
exposure to a particular sector or trend.

Provides Margin of Safety

A margin of safety can help protect investors from
unexpected events such as economic recessions,
industry disruptions, or management missteps that can
cause a decline in a stock’s price.
Bottom-up stock analysis points out undervalued
companies with a wide margin between their intrinsic
value and market price.

Cons of Bottom-Up Stock Analysis

Investors should also be aware of the following
drawbacks:
Consumes Time and Effort
Conducting comprehensive scrutiny of a company’s
financial statements, management quality, and
competitive positioning can take several hours or days,
especially for complex or unfamiliar industries.
As a result, bottom-up analysis may not be suitable for
investors who do not have the time or expertise to
perform in-depth research.
Prone to Biases
This analytical approach relies heavily on qualitative
judgments and assumptions that can be subjective.
For example, assessing a company’s competitive
advantage or management quality may vary depending
on the investor’s perspective or interpretation. As a
result, the analysis may not be entirely objective or
accurate.
Overlooks Macroeconomics
Bottom-up analysis may overlook aggregate factors
affecting a company’s performance and stock price.
While bottom-up analysis focuses on fundamental
factors that drive a company’s growth and profitability,
macroeconomic trends such as interest rates, inflation,
and global trade can also affect a company’s revenues,
costs, and margins
Misses Weaknesses and Threats - The bottom-up
approach may not provide a complete picture of a
company’s risks and challenges. While analyzing a
company’s fundamentals can reveal its strengths and
opportunities, it may not capture its weaknesses and
threats adequately.
Factors such as regulatory changes, technological
disruptions, or industry shifts can pose significant risks
to a company’s future prospects and affect its stock
price.
Final Thoughts
Bottom-up stock analysis is a valuable investment
strategy that evaluates individual companies based on
their fundamentals.
The approach involves analyzing a company’s financial
metrics, management quality, competitive positioning,
and valuation to determine whether a stock is
undervalued or overvalued relative to its peers or the
overall market.
The advantages of bottom-up analysis include a focus
on a company’s fundamentals, avoidance of herd
mentality, portfolio diversification, and the provision of
a margin of safety.
However, this approach can be time-consuming and
prone to biases. It may also overlook macroeconomic
trends and other weaknesses and threats to a company.
Investors must consider consulting a qualified financial
advisor who specializes in wealth management
services and can bottom-up approach and other analyses
to help make informed decisions.
What is the difference between bottom-up and top-
down investing?
The bottom-up approach analyzes individual companies
and stocks based on their fundamentals, while top-down
investing examines macroeconomic factors such as
interest rates, inflation, and GDP growth
Can bottom-up analysis be applied to all types of
securities?
Bottom-up analysis can be applied to various securities
such as stocks, bonds, and mutual funds. However, it
may not be suitable for complex securities or those with
limited data available
How often should you review your bottom-up
analysis strategy?
Investors should review their bottom-up analysis
strategy regularly, at least annually, to ensure that the
company’s fundamentals and competitive positioning
have not changed significantly.
What are some common mistakes to avoid in
bottom-up stock analysis?
Common mistakes include failing to diversify one’s
portfolio, being too optimistic or pessimistic about a
company’s prospects, and relying on insufficient or
outdated data. Investors must also avoid overlooking
macroeconomic trends and ignoring industry
disruptions or threats in making decisions
Is bottom-up analysis more suitable for long-term or
short-term investors?
Bottom-up analysis is more suitable for investors who
are interested in building a portfolio of quality
companies with long-term growth potential. Short-term
investors may not have enough time to conduct the
thorough research and analysis required for the bottom-
up approach.

8.Technical Analysis:-
Link:-
https://en.m.wikipedia.org/wiki/Technical_analysis
What is Technical Analysis?
Technical analysis is a method used to evaluate
securities by analyzing statistics generated by market
activity, such as past prices and trading volume.
Key Concepts of Technical Analysis:
Price Patterns: Patterns formed by price movements,
such as head and shoulders, triangles, and flags, which
are used to predict future price movements.
Volume: The amount of shares traded in a security over
a specific period, often used to confirm trends or
signals.
Support and Resistance Levels: Price levels at which a
stock tends to stop falling (support) or rising
(resistance), often used to identify entry and exit points.
Trends: The direction in which a security's price is
moving, identified as uptrend, downtrend, or sideways
(range-bound).
Moving Averages: Calculations that smooth out price
data by creating a constantly updated average price,
used to identify trends over different time frames.
Indicators Used in Technical Analysis:
Relative Strength Index (RSI): Measures the speed and
change of price movements, indicating overbought or
oversold conditions.
Moving Average Convergence Divergence (MACD):
Shows the relationship between two moving averages
of a security's price, used to identify trend changes.
Bollinger Bands: Volatility bands placed above and
below a moving average, used to identify overbought or
oversold conditions.
Stochastic Oscillator: Compares a security's closing
price to its price range over a specific period, used to
predict trend reversals.
Volume: Indicates the strength or weakness of a price
movement, with increasing volume supporting a trend
and decreasing volume signaling a reversal.
Assumptions of Technical Analysis:
Market Discounts Everything: All information,
including historical prices and trading volumes, is
reflected in a security's price.
Prices Move in Trends: Price movements tend to follow
trends that can be identified and used for analysis.
History Tends to Repeat Itself: Patterns and trends that
have occurred in the past are likely to repeat in the
future, allowing for prediction based on historical data.
Uses of Technical Analysis:
Identifying Trends: Helps traders and investors identify
whether a security is in an uptrend, downtrend, or
sideways trend.
Entry and Exit Points: Provides signals for when to
enter or exit a trade based on price patterns and
indicators.
Risk Management: Helps manage risk by setting stop-
loss orders and profit targets based on technical levels.
Confirmation Tool: Used to confirm signals from other
forms of analysis, such as fundamental analysis, to
make more informed decisions.
9.Fundamental Analysis:-
Link:-
https://corporatefinanceinstitute.com/resources/valuatio
n/fundamental-analysis/

What is Fundamental Analysis?

Fundamental analysis is a method of evaluating a
security by analyzing the intrinsic value of its
underlying assets.
Key Components of Fundamental Analysis:
● Income Statement: Examines a company's
revenues, expenses, profits, and losses over a
specific period.
● Balance Sheet: Provides a snapshot of a company's
financial position at a particular point in time,
including its assets, liabilities, and shareholders'
equity.
● Cash Flow Statement: Shows the inflows and
outflows of cash and cash equivalents over a
specified period, providing insight into a company's
liquidity and ability to generate positive cash flows.
Financial Ratios Used in Fundamental Analysis:
● Profitability Ratios: Measure a company's ability to
generate profits relative to its revenue, assets, and
equity.
● Liquidity Ratios: Indicate a company's ability to
meet short-term obligations using its liquid assets.
● Solvency Ratios: Assess a company's long-term
financial viability and its ability to meet long-term
obligations.
● Efficiency Ratios: Evaluate how well a company
utilizes its assets and liabilities to generate revenue.
Valuation Methods in Fundamental Analysis:
● Comparable Company Analysis (CCA): Compares
a company's financial metrics to those of similar
publicly traded companies to determine its value.
● Precedent Transactions Analysis (PTA): Reviews
the prices paid for companies in similar
transactions to estimate a company's value.
● Discounted Cash Flow (DCF) Analysis: Estimates
the value of a company based on its projected
future cash flows, discounted to present value.
● Net Asset Value (NAV) Analysis: Calculates a
company's value based on the difference between
its total assets and total liabilities.
Uses of Fundamental Analysis:
● Stock Valuation: Helps investors determine
whether a stock is undervalued, overvalued, or
fairly valued.
● Credit Analysis: Assists lenders in evaluating a
company's ability to repay its debts.
● Investment Research: Provides insights into the
financial health and performance of a company,
aiding investment decisions.
Financial Statement Analysis: Identifies trends,
patterns, and anomalies in financial statements, helping
stakeholders understand a company's financial
performance and make informed decisions

10.Share
Link-https://www.angelone.in/knowledge-center/
share-market/what-are-shares-and-types-of-shares
Meaning -A share represents a unit of ownership of the
issuing company. There are various factors that may
influence which way its price moves. When a company
performs well and grows, its stock price tends to go up.
In such cases, if you’re a shareholder you can sell some
of the company’s stocks at a profit
What are the Different Types of Shares?
Broadly, there are two – equity shares and preference
shares.
Equity shares: Equity shares are also referred to as
ordinary shares. They are one of the most common
kinds of shares. These stocks are documents that give
investors ownership rights of the company. Equity
shareholders bear the highest risk. Owners of these
shares have the right to vote on various company
matters. Equity shares are also transferable and the
dividend paid is a proportion of profit. One thing to
note, equity shareholders are not entitled to a fixed
dividend. The liability of an equity shareholder is
limited to the amount of their investment. However,
there are no preferential rights in holding.
Equity shares are classified as per the type of share
capital.
Types of shares
Authorised share capital: This is the maximum
amount of capital a company can issue. It can be
increased from time to time. For this, a company needs
to conform to some formalities and also pay required
fees to legal entities.
Issued share capital: This is the portion of authorised
capital which a company offers to its investors.
Subscribed share capital: This refers to the portion of
issued capital upon which investors accept and agree.
Paid-up capital: This refers to the portion of the
subscribed capital for which the investors pay. Since
most companies accept the entire subscription amount
at one go, issued, subscribed, and paid capital are the
same thing.
There are a few other types of shares.
Right share: These are the kind of shares a company
issues to its existing investors. Such stocks are issued to
protect the ownership rights of existing shareholders.
Bonus share: Sometimes, companies may issue shares
to their shareholders as a dividend. Such stocks are
called bonus shares.
Sweat equity share: When employees or directors
perform their role exceptionally well, sweat equity
shares are issued to reward them.
Preference shares: In our discussion on what are types
of shares, we will now we will look at preference
shares. When a company is liquidated, the shareholders
who hold preference shares are paid off first. They also
have the right to receive profits of the company before
the ordinary shareholders.
Cumulative and non-cumulative preference shares:
In the case of cumulative preference share, when the
company does not declare dividends for a particular
year, it is carried forward and accumulated. When the
company makes profits in the future, these accumulated
dividends are paid first. In case of non-cumulative
preference shares, dividends do not get accumulated,
which means when there are no future profits, no
dividends are paid.
Participating and non-participating preference
shares: Participating shareholders have the right to
participate in remaining profits after the dividend has
been paid out to equity shareholders. So in years where
the company has made more profits, these shareholders
are entitled to get dividends over and above the fixed
dividend. Holders of non-participating preference
shares, do not have a right to participate in the profits
after the equity shareholders have been paid. So in case
a company makes any surplus profit, they will not get
any additional dividends. They will only receive their
fixed share of dividends every year.
Convertible and non- convertible preference shares:
Here, the shareholders have an option or right to
convert these shares into ordinary equity shares. For
this, specific terms and conditions need to be met. Non-
convertible preference shares do not have a right to be
converted into equity shares.
Redeemable and Irredeemable preference shares:
Redeemable preference shares can be claimed or
repurchased by the issuing company. This can happen
at a predetermined price and at a predetermined time.
These do not have a maturity date which means these
types of shares are perpetual. So companies are not
bound to pay any amount after a fixed period.

11.DIVIDEND
Link-
https://www.investopedia.com/terms/d/dividend.asp
What Is a Dividend?
A dividend is the distribution of a company’s earnings
to its shareholders and is determined by the company’s
board of directors. Dividends are often distributed
quarterly and may be paid out as cash or in the form of
reinvestment in additional stock.
Understanding Dividends
Dividends must be approved by the shareholders by
voting rights. Although cash dividends are common,
dividends can also be issued as shares of stock. Various
mutual funds and exchange-traded funds (ETFs) also
pay dividends.
A dividend is a reward paid to the shareholders for their
investment in a company’s equity, and it usually
originates from the company’s net profits. For
investors, dividends represent an asset, but for the
company, they are shown as a liability. Though profits
can be kept within the company as retained earnings to
be used for the company’s ongoing and future business
activities, a remainder can be allocated to the
shareholders as a dividend.
Dividend-Paying Companies
Larger, established companies with predictable profits
are often the best dividend payers and the following
industry sectors maintain a regular record of dividend
payments:
Basic materials
Oil and gas
Banks and financial
Healthcare and pharmaceuticals
Utilities
Important Dividend Dates
Dividend payments follow a chronological order of
events, and the associated dates are important to
determining which shareholders qualify to receive the
dividend payment.
Announcement date: Dividends are announced by
company management on the announcement date (or
declaration date) and must be approved by the
shareholders before they can be paid.
Ex-dividend date: The date on which the dividend
eligibility expires is called the ex-dividend date or
simply the ex-date. For instance, if a stock has an ex-
date of Monday, May 5, then shareholders who buy the
stock on or after that day will NOT qualify to receive
the dividend. Shareholders who own the stock one
business day prior to the ex-date, on Friday, May or
earlier, qualify for the distribution.
Record date: The record date is the cutoff date,
established by the company to determine which
shareholders are eligible to receive a dividend or
distribution.
Payment date: The company issues the payment of the
dividend on the payment date, which is when the money
gets credited to investors’ accounts.
How Do Dividends Affect a Stock’s Share Price?
As an example, a company that is trading at $60 per
share declares a $2 dividend on the announcement date.
As the news becomes public, the share price may
increase by $2 and hit $62.If the stock trades at $63 one
business day before the ex-dividend date. On the ex-
dividend date, it’s adjusted by $2 and begins trading at
$61 at the start of the trading session on the ex-dividend
date, because anyone buying on the ex-dividend date
will not receive the dividend
Why Do Companies Pay Dividends?
Dividends are often expected by the shareholders as a
reward for their investment in a company. Dividend
payments reflect positively on a company and help
maintain investors’ trust.
A high-value dividend declaration can indicate that the
company is doing well and has generated good profits.
But it can also indicate that the company does not have
suitable projects to generate better returns in the future.
Therefore, it is utilizing its cash to pay shareholders
instead of reinvesting it into growth.
Fund Dividends
Dividends paid by funds, such as a bond or mutual
funds, are different from dividends paid by companies.
Funds employ the principle of net asset value (NAV),
which reflects the valuation of their holdings or the
price of the assets that a fund has in its portfolio
Are Dividends Irrelevant?
Economists Merton Miller and Franco Modigliani
argued that a company’s dividend policy is irrelevant
and has no effect on the price of a firm’s stock or its
cost of capital. A shareholder may remain indifferent to
a company’s dividend policy as in the case of high
dividend payments where an investor can just use the
cash received to buy more shares.
How to Buy Dividend-Paying Investments
Investors seeking dividend investments have several
options, including stocks, mutual funds, and exchange-
traded funds (ETFs). The dividend discount model or
the Gordon growth model can help choose stock
investments. These techniques rely on anticipated future
dividend streams to value shares.
How Often Are Dividends Distributed to
Shareholders?
Dividends are commonly distributed to shareholders
quarterly, though some companies may pay dividends
semi-annually. Payments can be received as cash or as
reinvestment into shares of company stock
Why Are Dividends Important?
 Though dividends can signal that a company has
stable cash flow and is generating profits, they can
also provide investors with recurring revenue.
Dividend payouts may also help provide insight
into a company’s intrinsic value. Many countries
also offer preferential tax treatment to dividends,
where they are treated as tax-free income.

12.Mutual fund
Meaning -A mutual fund is an investment vehicle
where many investors pool their money to earn returns
on their capital over a period. This corpus of funds is
managed by an investment professional known as a
fund manager or portfolio manager. It is his/her job to
invest the corpus in different securities such as bonds,
stocks, gold and other assets and seek to provide
potential returns. The gains (or losses) on the
investment are shared collectively by the investors in
proportion to their contribution to the fund.
Why invest in mutual funds
There are many benefits of investing in mutual funds.
Here are some important ones –
Professional expertise
Consider a situation where you purchase a new car. But
the catch here is that you don’t know how to drive.
Now, you have two options:
i) You can learn how to drive
ii) You can hire a full-time driver
In the first scenario, you would have to take driving
lessons, pass the driving test and obtain a license. But if
you don’t have the time for driving classes, it is better
to opt for a driver. Same is the case with investments.
Investing in financial markets requires a certain amount
of skill. You need to research the market and analyse
the best options available. You need knowledge on
matters such as macro economy, sectors, company
financials, from an asset class perspective. This requires
a significant amount of time and commitment from you.
Returns- One of the biggest mutual fund benefits is
that you have the opportunity to earn potentially higher
returns than traditional investment options offering
assured returns. This is because the returns on mutual
funds are linked to the market’s performance. So, if the
market is on a bull run and it does exceedingly well, the
impact would be reflected in the value of your fund.
However, a poor performance in the market could
negatively impact your investments. Unlike traditional
investments ,mutual funds do not assure capital
protection. So do your research and invest in funds that
can help you meet your financial goals at the right time
in life.
Diversification
You may have heard the saying: Don’t put all your eggs
in one basket. This is a famous mantra to remember
when you invest your money. When you invest only in
a single asset, you could risk a loss if the market
crashes. However, you can avoid this problem by
investing in different asset classes and diversifying your
portfolio.
If you were investing in stocks and had to diversify, you
would have to select at least ten stocks carefully from
different sectors. This can be a lengthy, time-consuming
process. But when you invest in mutual funds, you
achieve diversification instantly. For instance, if you
invest in a mutual fund that tracks the BSE Sensex, you
would get access to as many as 30 stocks across sectors
in a single fund. This could reduce your risk to a large
extent.
Tax benefits
Mutual fund investors can claim a tax deduction of up
to Rs. 1.5 lakh by investing in Equity Linked Savings
Schemes (ELSS). This tax benefit is eligible under
Section 80C of the Income Tax Act. ELSS funds come
with a lock-in period of 3 years. Hence, if you invest in
ELSS funds, you can only withdraw your money after
the lock-in period ends.
Another tax benefit is indexation benefit available on
debt funds. In case of traditional products, all interest
earned is subject to tax. However, in case of debt
mutual funds, only the returns earned over and above
the inflation rate (embedded in cost inflation index
{CII}) are subject to tax. This could also help investors
earn higher post tax returns.
Types of mutual fund
Types of funds based on asset class:
Debt funds
Debt funds (also known as fixed income funds) invest
in assets like government securities and corporate
bonds. These funds aim to offer reasonable returns to
the investor and are considered relatively less risky.
These funds are ideal if you aim for a steady income
and are averse to risk.
Equity funds
In contrast to debt funds, equity funds invest your
money in stocks. Capital appreciation is an important
objective for these funds. But since the returns on
equity funds are linked to market movements of stocks,
these funds have a higher degree of risk. They are a
good choice if you want to invest for long term goals
such as retirement planning or buying a house as the
level of risk comes down over time.
Hybrid funds
What if you want equity as well as debt in your
investment? Well, hybrid funds are the answer. Hybrid
funds invest in a mix of both equity and fixed income
securities. Based on the allocation between equity and
debt (asset allocation), hybrid funds are further
classified into various sub-categories.
Types funds based on structure:
Open-ended mutual funds
Open-ended funds are mutual funds where an investor
can invest on any business day. These funds are bought
and sold at their Net Asset Value (NAV). Open-ended
funds are highly liquid because you can redeem your
units from the fund on any business day at your
convenience.
Close-ended mutual funds
Close-ended funds come with a pre-defined maturity
period. Investors can invest in the fund only when it is
launched and can withdraw their money from the fund
only at the time of maturity. These funds are listed just
like shares in the stock market. However, they are not
very liquid because trading volumes are very less.
Types of funds based on investment objective:
Mutual funds can also be classified basis investment
objectives.

Growth funds
The main objective of growth funds is capital
appreciation. These funds put a significant portion of
the money in stocks. These funds can be relatively more
risky due to high exposure to equity and hence it is
good to invest in them for the long-term. But if you are
nearing your goal, for example, you may want to avoid
these funds.
Income funds
As the name suggests, income funds try to provide
investors with a stable income. These are debt funds
that invest mostly in bonds, government securities and
certificate of deposits, etc. They are suitable for
different -term goals and for investors with a lower-risk
appetite.
Liquid funds
Liquid funds put money in short-term money market
instruments like treasury bills, Certificate of Deposits
(CDs), term deposits, commercial papers and so on.
Liquid funds help to park your surplus money for a few
days to a few months or create an emergency fund.
Tax saving funds
Tax saving funds offer you tax benefits under Section
80C of the Income Tax Act. When you invest in these
funds, you can claim deductions up to Rs 1.5 lakh each
year. Equity Linked Saving Scheme (ELSS) are an
example of tax saving funds.
What is Systematic Investment Plans (SIP)?
One of the best features about investing in mutual funds
is that you don’t need a large amount of money to start
investing. Most fund houses in the country allow
investors to begin investing with as little as Rs. 500
(some start at Rs. 100) per month through Systematic
Investment Plans (SIPs). Now, this might seem like a
tiny amount to begin your investment journey, but when
you invest consistently over a considerable period, you
can achieve a substantial sum.
How to invest in mutual funds
These days, investing in mutual funds has become
effortless. You can even do it right from your home.
Here are the steps you can follow to begin your
investment journey:
Sign up for a mutual fund account on
franklintempletonindia.com
Complete your KYC formalities (if you have not yet
done so)
Enter the necessary details as required
Identify the funds you wish to invest based on your
financial goals
Select the fund and transfer the required amount
You can also create a standing instruction with your
bank in case you invest in a SIP each month.
Final thoughts
Investing in mutual funds is one of the simplest ways to
achieve your financial goals on time. But before you
invest, take an adequate amount of time to go through
the different fund options. Don’t Invest in a fund
because your colleague or friend has invested in it.
Identify your goals and invest accordingly. If required,
you can approach a financial advisor to help you make
the right investment decisions and plan your financial
journey.
Note: SIP should not be construed as promise on
minimum returns and/or safeguard of capital. SIP does
not assure any protection against losses in declining
market conditions.

13.Insurance
https://www.investopedia.com/terms/i/insurance.asp
What Is Insurance?
Insurance is a contract, represented by a policy, in
which a policyholder receives financial protection or
reimbursement against losses from an insurance
company. The company pools clients’ risks to make
payments more affordable for the insured. Most people
have some insurance: for their car, their house, their
healthcare, or their life.
How Insurance Works
Many insurance policy types are available, and virtually
any individual or business can find an insurance
company willing to insure them—for a price. Common
personal insurance policy types are auto, health,
homeowners, and life insurance. Most individuals in the
United States have at least one of these types of
insurance, and car insurance is required by state law.
Cancellation insurance.
Insurance Policy Components
Understanding how insurance works can help you
choose a policy. For instance, comprehensive coverage
may or may not be the right type of auto insurance for
you. Three components of any insurance type are the
premium, policy limit, and deductible.
Premium
A policy’s premium is its price, typically a monthly
cost. Often, an insurer takes multiple factors into
account to set a premium. Here are a few examples:
Auto insurance premiums: Your history of property
and auto claims, age and location, creditworthiness, and
many other factors that may vary by state.
Home insurance premiums: The value of your home,
personal belongings, location, claims history, and
coverage amounts.
Health insurance premiums: Age, sex, location,
health status, and coverage levels.
Life insurance premiums: Age, sex, tobacco use,
health, and amount of coverage.
Policy Limit
The policy limit is the maximum amount an insurer will
pay for a covered loss under a policy. Maximums may
be set per period (e.g., annual or policy term), per loss
or injury, or over the life of the policy, also known as
the lifetime maximum.
Deductible
The deductible is a specific amount you pay out of
pocket before the insurer pays a claim. Deductibles
serve as deterrents to large volumes of small and
insignificant claims.
Types of Insurance
There are many different types of insurance. Let’s look
at the most important.
Health Insurance
Health insurance helps covers routine and emergency
medical care costs, often with the option to add vision
and dental services separately. In addition to an annual
deductible, you may also pay copays and coinsurance,
which are your fixed payments or percentage of a
covered medical benefit after meeting the deductible.
However, many preventive services may be covered for
free before these are met
Home Insurance
Homeowners insurance (also known as home insurance)
protects your home, other property structures, and
personal possessions against natural disasters,
unexpected damage, theft, and vandalism. Homeowner
insurance won’t cover floods or earthquakes, which
you’ll have to protect against separately. Policy
providers usually offer riders to increase coverage for
specific properties or events and provisions that can
help reduce deductible amounts. These adders will
come at an additional premium amount.
Auto Insurance
Auto insurance can help pay claims if you injure or
damage someone else’s property in a car accident, help
pay for accident-related repairs on your vehicle, or
repair or replace your vehicle if stolen, vandalized, or
damaged by a natural disaster.
Life Insurance
A life insurance policy guarantees that the insurer pays
a sum of money to your beneficiaries (such as a spouse
or children) if you die. In exchange, you pay premiums
during your lifetime.
Travel Insurance
Travel insurance covers the costs and losses associated
with traveling, including trip cancellations or delays,
coverage for emergency health care, injuries and
evacuations, damaged baggage, rental cars, and rental
homes.
Why Is Insurance Important?
Insurance helps protect you, your family, and your
assets. An insurer will help you cover the costs of
unexpected and routine medical bills or hospitalization,
accident damage to your car or injury of others, and
home damage or theft of your belongings. An insurance
policy can even provide your survivors with a lump-
sum cash payment if you die. In short, insurance can
offer peace of mind regarding unforeseen financial
risks.
Is Insurance an Asset?
Depending on the type of life insurance policy and how
it is used, permanent or variable life insurance could be
considered a financial asset because it can build cash
value or be converted into cash. Simply put, most
permanent life insurance policies have the ability to
build cash value over time.